Appeal from the Circuit Court of Kane county; the Hon. HARRY
C. DANIELS, Judge, presiding. Decree affirmed.
MR. PRESIDING JUSTICE WOLFE DELIVERED THE OPINION OF THE COURT.
Sidney Ginsberg died testate leaving a last will and testament which was duly admitted to probate in the Kane county probate court on April 17, 1951. In substance, the will directed the entire estate to be given fifty per cent each to the Aurora Foundation, a tax-exempt nonprofit corporation, and to one General J.V. Dillon, a schoolmate and friend not related to the testator. Any portion not distributable for any reason to one beneficiary, was given to the other, but it was provided that Dillon must survive distribution in order to take.
After admission of the will to probate, the executor petitioned the county probate court for an order of redistribution because of a tax dispute having arisen between the two beneficiaries. The Illinois inheritance tax was imposed, of course, upon the legacy and devise to Dillon as was the federal estate tax, and the federal income tax was due upon income received by the estate subsequent to the testator's death. The Foundation contended that all these taxes should be paid and charged by the executor against the share of Dillon prior to distribution; whereas Dillon contended that the taxes should be paid by the executor as an expense of administration prior to distribution and charged equally against the share of each beneficiary.
The only clause of the will relevant to taxes is quoted herewith, to-wit:
"I hereby direct that any and all estate, inheritance or succession taxes or death duties (by whatever name called), that may be imposed upon any of the legacies set forth in this Will shall be paid by the respective legatees, devisees or beneficiaries, and that said taxes shall not be paid out of the residue of my estate."
The Kane county probate court, upon said petition and answers of both beneficiaries, ordered that the Illinois inheritance tax imposed upon Dillon's share, and the federal estate tax as finally assessed, be paid by the executor from the assets distributable to Dillon and charged against his share prior to distribution; but that the federal income tax upon income received subsequent to the testator's death be paid by the executor from the corpus of the estate as an expense of administration prior to distribution to the beneficiaries, and charged equally against the shares of both the Foundation and of Dillon.
From this order both the Foundation and Dillon appealed to the circuit court of Kane county, which heard the consolidated cause de novo and decreed the same as had the probate court. In its decree the circuit court found that:
(a) The Illinois inheritance tax was imposed by the State upon the legacy and devise of Dillon, was properly payable from assets distributable to him, and that the amount so paid should be charged against his share prior to distribution;
(b) The tax-exempt share passing to the Foundation was deductible from the gross estate in computing the net estate subject to the federal estate tax; that Dillon's share of the net estate was subject to the federal estate tax, and that the testator intended such taxes to be paid by the beneficiary whose share gave rise to the tax, i.e. Dillon;
(c) Nothing in the will referred to the federal income tax, and that such tax therefore was an expense of administration to be paid by the executor from the corpus prior to distribution and charged equally to the beneficiaries.
From that decree the Foundation here appeals only the holding as to federal income tax, and Dillon appeals from the rulings as to Illinois inheritance tax and federal estate tax.
It appears to be Dillon's contention, or theory, that the testator, in bequeathing fifty per cent of the entire estate to each of the two appellants, intended to preserve equality of participation by the beneficiaries undisturbed by payment of any death duties. He argues that article nine of the will refers only to taxes imposed upon legacies, and should not be deemed to refer to the federal estate tax which is not a tax on a legacy but rather a tax on the transfer of property at death. He admits that the Illinois inheritance tax would fall on him alone, were it not for article nine of the will; but he contends that article nine does not refer to this tax either, because it directs such taxes to be paid by the respective legatees, and that the testator's intention was for both legatees to share this tax.
The Foundation argues that under article nine of the will, Dillon's share should bear the entire federal income tax, since such tax could only have been paid on behalf of Dillon and as a tax advantage to him.
It is not disputed by either beneficiary that, were article nine not in the will, estate taxes would be an expense of administration, prior to distribution of the residue to the two beneficiaries. However, the testator by article nine has specifically provided otherwise as to certain types of taxes, and it is our duty to give effect to this intention. With regard to the federal estate tax, the testator's intention seems clear: such a tax is a "death duty" by whatever name called, whether levied on a legacy or on transfer of property at death, and was imposed upon one of the legacies, i.e., Dillon's, by reason ...